The Disruptive Effect of Chinese New Year

February 1, 2016

If you’re doing any business in Asia, you can’t fail to be aware of Chinese New Year which is being celebrated on the 8th February.

This huge event is celebrated in China and beyond, including countries such as Thailand, Malaysia and the Philippines. Anywhere that has a large Chinese population usually marks the occasion in some form or another. London has its own colourful event each year.

From a business perspective, one of the key things to remember is that areas that take Chinese New Year seriously tend to shut down for a long period over the holidays. There’s a big emphasis on visiting family at this time of the year, and with many migrant workers living long distances from their families inside China it is inevitable that a large section of the workforce will be making long trips for extended periods. This has a knock on effect on the weeks around the holidays: hotel, train and air fairs sky rocket meaning it’s hard to do business in the surrounding weeks.

The sheer scale of the migration was illustrated last year by Baidu, the Chinese search giant, which used data from smartphones to plot the travel routes of Baidu Maps users.

In 2016, China marks an official holiday from February 7-13 but additional days are added from the adjacent weekend dates to give a week long holiday. In theory the Saturday before (6 February) and the Sunday after (14 February) are worked.

In practice, the holidays may stretch on much longer. The traditional celebrations in fact start much earlier: up to three weeks in advance depending on local norms. So expect that there may be disruption from as early as 16 January. The festivities traditionally end on 22 February, the Lantern festival, but some people will already be back at work by then.

Public services such as government offices will close over the holiday period, and banks and post offices will tend to keep only their main branches open.

Although larger stores and entertainments flourish during the season, smaller shops and family owned businesses are likely to be closed. If you’re selling in China, you’ll find activity continues apace during the period as holidaying locals enjoy some off-duty shopping. There are also traditions for activities such as getting hair cuts and house cleaning. The main emphasis is on ceremonial eating and family reunions and these will be top of everyone’s mind for the period.

Chinese New Year and your supply chain

If you’re importing from China, plan well ahead for the New Year. Many suppliers will be anxious to push orders out the door ahead of the holiday, so quality may be compromised as production is rushed. It’s best to order far in advance of any holiday festivals. There will be a surge in orders being dispatched around this time, so expect a queue at ports.

It’s common for your shipment to be pushed onto the next available carrier, and all shipments are often delayed around this time. The best advice is to get your order to the port at least ten days before the holidays begin, at an absolute minimum. Although the ports stay open, there may be a reduced operating team at work even though the port is highly congested.

Another impact of the holiday season is that many workers don’t return after the holidays. Migrants decide to stay home, others switch jobs and use the new year as an opportunity for a change. Businesses won’t know how many of their workers will return, and often won’t know when they’ll be back, making the period after the holidays one of uncertainty and disruption.

China already faces a labour shortage, particularly for skilled workers. Those workers that do return will arrive back at work at staggered intervals; some not until after the Lantern festival (22 February). There will inevitably be new workers in place to replace those that have left, meaning some workers are less experienced. This can impact on deadlines in the period after the holidays.

There’s also a knock-on effect across China’s own supply chain.

Manufacturers find their own supply chain is impacted by the holidays, delaying arrivals of new raw materials used for production.

Disruption caused by the holiday period stretches across the wider period and it can take time for production to return to full capacity.

Although shop-floor or blue collar workers tend to take a long break it’s often the case that those in managerial roles take a shorter one. Some work may continue over the month whilst more senior figures return to work ahead of the factory workers. You might make progress with getting office based tasks, such as design work, done over the period.

If you’re looking for a new supplier, it’s worth looking for one that looks as if they can handle the holiday period effectively and minimise the impact on your operations. For example, many factories operate a ‘just in time’ approach to manufacturing, only making new goods when an order comes in. A factory with a larger stock capacity may be able to smooth out production breaks by stocking up on the goods it makes, and stocking up on raw materials.

You may wish to avoid pre-paying for orders ahead of the holidays. It’s common for businesses to close for good at this time of the year, so you may be left stranded. If you suspect that your supplier is at all vulnerable, be wary of making payments for orders to be delivered after the break just in case.

How important are you?

In periods where the factory is working with a skeleton team, orders may be prioritised according to who is considered the most important client. If you are a particularly valued customer, this puts you in a stronger position during the holiday period.

Priority tends to be given to repeat rather than new buyers, larger rather than smaller orders, and buyers with a local presence or agent who can chase it up.

The strength of the social relationship between your company and theirs is also an important factor.

Although many westerners struggle to understand the concept of a month long holiday, migrant workers in China work extremely hard and take very little time off most of the year round. Chinese New Year is often their only opportunity to see their family, so don’t be surprised when production shuts down for around three weeks. You can consider the extended break to be the price of having a hard working team the rest of the year round.